Working parents in the UK could be missing out on tax-free childcare support worth up to £4,000 per year, according to a recent warning from HM Revenue and Customs (HMRC).
Manchester Evening News reports that the scheme, which helps cover childcare costs, requires families to apply online, a process that takes around 20 minutes. Many eligible households have yet to take advantage of it, despite the financial benefits.
How Tax-Free Childcare Works
The tax-free childcare scheme allows parents to receive a government top-up of £2 for every £8 they contribute to their online childcare account.
This means families can get up to £500 every three months, or £1,000 if their child has a disability, to help pay for approved childcare services. These include nurseries, childminders, after-school clubs, and holiday activity programmes.
Funds deposited into the tax-free childcare account can be used immediately. Parents can pay for childcare providers directly from their online account as long as they are registered with the scheme.
If families do not use the entire balance, they can withdraw their contributions, but the government’s top-up will be removed from the amount refunded.
With the Easter holidays approaching, HMRC is urging parents to register as soon as possible to maximise their savings for the upcoming financial year.
Who Is Eligible for Tax-Free Childcare?
To qualify for tax-free childcare, families must meet specific requirements. The child must be aged 11 or under, or 16 if they have a disability. Eligibility ends on 1 September following the child’s 11th or 16th birthday, depending on their circumstances.
Parents must earn at least the National Minimum Wage or Living Wage for 16 hours a week on average. The scheme is not available to families where either parent earns more than £100,000 per year.
Additionally, parents receiving Tax Credits, Universal Credit, or childcare vouchers are not eligible for tax-free childcare.
The scheme applies to a variety of childcare providers, but the provider must be registered with the scheme for parents to use their funds. More information on eligibility and conditions is available on the GOV.UK website.
How to Apply and Income Verification
Applying for tax-free childcare is done online, and parents must provide specific details. They need their National Insurance number, their Unique Taxpayer Reference (UTR) if self-employed, their child’s UK birth certificate reference number, and the date they started (or are due to start) work.
If parents are married or in a civil partnership, they must include their partner’s details in the application.
Once the application is approved, parents can deposit money immediately and begin using the account. Payments can be made at any time, and unused funds remain available for future childcare expenses.
Self-employed parents and company directors must prove they meet the minimum income requirements. Those who do not submit regular PAYE information may need to provide additional evidence, such as invoices, bank statements, wage slips, or a letter from an accountant confirming income.
HMRC may also request year-end payroll records, a letter from a tax agent or adviser confirming salary payments, or annual wage slips.
